Monday, March 3, 2008

Christmas Tree Study Launched

Christmas Tree Growers and retailers attending the CT PLUS Conference in San Francisco in February participated in a Town Hall session discussing the pros and cons of Marketing Orders (Check-off programs) and whether or not one might be beneficial for the Christmas Tree industry.

Attendees agreed that the idea is worth further consideration and asked the Board of the National Christmas Tree Association to appoint a task force to gather additional information about the options and create a draft of what such an order might look like prior to NCTA's National Convention in Des Moines, Iowa in August.

Attendees at the National Convention will then look at the Draft Document, debate the elements and propose changes.Growers also urged the board to create periodic updates on the progress of the task force. This blog is designed to deliver those updates, and also serve as a resource for anyone interested in the topic.

Industry at a Crossroads

Industry at a Crossroads

About this time four years ago, the U.S. Christmas Tree industry was in the midst of a downward spiral. Purchases of Real Christmas trees had dropped to 23.4 million – about two-thirds of what they had been a decade earlier. What’s worse, since the number of households in the U.S. had increased, market share was down even more.

It seemed that having a Real Tree was out of vogue – perhaps too messy and too much hassle for the average household. Even scarier was the fact that the new generation of prospective buyers was growing up without the tradition of having a Real Tree.

In 2004, the National Christmas Tree Association (NCTA) put together a task force to design and implement a Market Expansion Campaign, and the first order of business was to stop the decline in sales. Since the formation of that program, Real Tree sales have increased about 33%. One can argue that the Market Expansion program isn’t the only reason for the change in direction, but it is certainly plausible to assume that it played a role. Increasing sales were likely assisted by an increasing number of households, increasing numbers of Generation Ys in the market place, and China backlash (lead, foreign exchange, environmental issues), etc.

The world is changing. Did anyone see or hear one of the thousands of ads ran this season? They were everywhere. Should we be surprised that consumers reported purchasing 87.1% more new fake trees this last season? And since fake tree users keep them an average of 6-9 years, those people aren’t going to be back in the market for a Real Tree any time soon.

Do you know what buyers of new fake trees think about the environmental benefits of Real Trees? For every one of them that said a Real Tree was better for the environment, 6.25 said a fake tree was better for the environment! Where do you suppose they got that idea? You betcha. The fake tree industry is telling them that fake trees are safer, cleaner, cheaper in the long run, and better for the environment, because they are re-used.

We have an effective program that is making a difference. Last year alone, NCTA headed off negative stories about drought, quality, mold, allergies and fire hazards. More than 88 million people heard news stories about NCTA, Trees for Troops and the White House Christmas Tree. NCTA is widely accepted as the Voice of the Industry, and more than a million people used its web site to search for a place to buy their real tree.

While the fake tree industry is investing dollars to vigorously promote their product, the Real Tree industry is pulling back and devoting fewer funds to public relations and marketing. More than 1,000 people donated more than $900,000 for 2004 promotion and marketing programs. By 2007, donations to the market expansion activities had dropped to about $400,000. The erosion of funding resulted in fewer projects aimed at positively impacting consumer attitudes about Real Trees limiting the ability of the industry to affect the sales of Real Trees in the marketplace.

Given this continued erosion of the market share of farm-grown Christmas Trees, an industry task force is being formed to study the possibility of a federal marketing order that could establish a nationwide checkoff designed to support expanded promotion, marketing and research projects.

The NCTA Board of Directors supports the industry task force study of a federal marketing order.

Even if the industry decides to pursue a nationwide checkoff, it takes at least a year for USDA to follow its “rule making procedures.” Thus, it is highly unlikely that a checkoff could start before 2010. In the interim, NCTA will engage in an aggressive promotion and protection program as funds allow.

The NCTA board urges members and non-members to be involved in the discussion and will schedule a town hall discussion at the 2008 national convention at which time the task force will give a report.

Updated reports of the Task Force findings will be available here at

The Web site Wikipedia contains the following definitions of a checkoff:
“In the United States, a checkoff organization collects funds, sometimes called checkoff dollars, from producers of a particular agricultural commodity and uses these funds to promote and do research on the commodity. The organizations must promote their commodity in a generic way, without reference to a particular producer. Checkoff programs attempt to improve the market position of the covered commodity by expanding markets, increasing demand, and developing new uses and markets. The United States Department of Agriculture is responsible for overseeing the formation of checkoff organizations under the authority of Commodity, Promotion, Research and Information Act of 1996. These organizations are responsible for familiar American advertising campaigns, including "Milk Does a Body Good," the milk moustache series, "Pork: The Other White Meat," "The Incredible, Edible Egg", and "Beef: It's What's for Dinner."

USDA encouraged the industry task force to consider the blueberry and watermelon marketing orders as a possible model to explore. In the case of blueberries, the producers are automatically assessed $12 per ton when they sell their blueberries. This generates about $2 million that the U.S. Highbush Blueberry Council uses for promotion and research programs. Likewise, watermelon producers are automatically assesed .4% at the time of sale with the funds going to research and promotion programs administered through the National Watermelon promotion board.

A. Proposals are submitted to the Ag Marketing Service of U.S. Department of Agriculture and must have widespread industry support prior to implementation.
B. Federal Law stipulates that data collected via a marketing order can only be used to administer the program. No information can be provided to the IRS or other agencies.
C. USDA conducts a referendum to determine whether those being collected favor the checkoff. Such a referendum must be held not later than three years after assessments first begin.
D. Approval may be determined either by a simple majority of those voting or a majority of those voting who represent a majority of the production.
E. USDA shall conduct “renewal referenda” not later than seven years after the assessments begin; at the request of the board; or at the request of 10% or more of the eligible voters.
F. A periodic independent evaluation of all promotion, research and information activities is required.
G. The funds are administered by a “Marketing Board” appointed by the Secretary of Agriculture from nominations submitted by the industry.
H. Funds collected under the order can NOT be used for lobbying or membership activities. And, the Order can establish a cap (generally 5%) on administrative costs.
I. The Order may create a dual system whereby the automatic assessments are collected starting at a minimum quantity (number of trees or dollar value of product) and those under that minimum are included in a voluntary assessment.
J. All growers included in the automatic assessment program must pay the decided upon fee ... other commodities have found this to be more fair than other options of funding promotion and research.
K. The assessment may be collected on imported trees and greens. Again, these commodities find it more fair when importers are assessed as well as domestic producers.
L. Commodities with checkoffs have found that these funds increase its leverage in obtaining government grants and research funds.
M. In 2005, the U.S. Supreme Court ruled that commodity checkoffs are constitutional.

The Industry Task Force plans to seek answers for several questions:
(Goal: determine what a Christmas tree checkoff would look like ... if one were created.)

1) What is the current economic situation and outlook for farm-grown Christmas trees and how much promotion and/or research funds would be needed to reverse the loss of market share? How many dollars are needed to be effective? ($2.5 million suggested)
2) What assessment rate is needed to generate the level of revenues needed to adequately fund nationwide marketing and promotion programs?
3) What is unit of collection: Cents per tree? Percent of revenue?
4) How/where would the assessment be collected? (Some have suggested basing payments on the capital gains calculation reported on IRS form 4797.)
5) Could it / should the assessment be collected from wholesalers & brokers? Should the checkoff assessments include wreaths, garland and other greens?
6) What is the ideal size of the “marketing” board? (Some have suggested 10-12 persons.) Would board members be nominated by region?
7) Do we want to put a cap on allowable administrative expenses? [Most programs cap administrative costs at up to 5% of funds collected.]
8) What is the relationship – if any – between the “marketing” board and the industry trade association (NCTA)? [Some other programs stipulate that the marketing board must conduct its programs via contracts with the industry trade association while others keep the relationship at arms length.]
9) If a nationwide checkoff is created, who would serve as the “voice of the industry”? The new “marketing board” or the industry trade association (NCTA)?
10) Can state organizations receive (under contract) some of the funds for promotion and research? If so, what is required of states to receive dollars?
11) What is cost of collection and compliance? Should the industry follow the USDA suggestion of creating a dual program that is automatic for producers above a certain revenue or number of trees and voluntary for those below that amount of revenue or number of trees? And, if so, what is the cutoff between the automatic and voluntary assessment programs?
12) Should the industry propose a delayed referendum? If so, the law requires subsequent referenda every four to five years; at the request of the marketing board; or at the request of 10% or more of those persons eligible to vote.
13) What does it cost to develop a “marketing order” creating a nationwide checkoff? And, how does the industry generate these funds if the industry determines to move forward?



What is a nationwide checkoff?
Authorized through the federal government, checkoffs collect funds from producers of
agricultural commodities and use these funds for promotion, marketing, research and other specified programs. Checkoff funds promote the commodity in a generic way without reference to a particular producer. Commodities with federally-authorized checkoff programs include avocados, blueberries, cotton, honey, mangos, mushrooms, peanuts, popcorn, soybeans and watermelons.

What is a federal marketing order?
A rule developed by the U.S. Department of Agriculture (USDA) that outlines specific details about a commodity checkoff program. The order follows guidelines established by the Commodity Promotion, Research and Information Act of 1996 (the Act) which Congress passed in 1996.

Are checkoff programs legal?
Yes, the U.S. Supreme Court has ruled that federal checkoff programs are constitutional and enforceable rules and regulations.

How does a checkoff get started?
The industry of a particular commodity submits a proposal for a checkoff to USDA’s Agricultural Marketing Service (AMS). Using the industry’s proposal and the Act, AMS develops a proposed federal marketing order and submits it for public comment (via notice by publication in the Federal Resister). After reviewing comments from the public and making any changes based on those comments, AMS publishes a final rule which establishes the official starting date for the checkoff program. [Most checkoff programs established under the 1996 Act follow what is called a delayed referendum. The program operates for up to three years after which a referendum is held to determine whether the program will be continued.]

If proposed, how soon would a nationwide checkoff on Christmas trees begin?
It takes at least a year for USDA to follow its "rule making procedures." Thus, it is highly unlikely that a checkoff could start before 2010.

If started, how can a checkoff be ended?
Producers vote to continue or discontinue the checkoff program in a referendum with those paying the checkoff eligible to vote. A referendum happens in one of three ways: in the required periodic referendum; at the request of the "checkoff board," or at the request of 10% of the eligible voters. [See "referendum section" at end of these FAQs.]

Why do commodities establish checkoff programs?
Most attempted a voluntary program to promote their commodity, sponsor research on their commodity or counter challenges from competitors. As participation in voluntary programs decline; however, donors begin asking "why should I pay when the guy down the street doesn’t." The creation of an automatic or mandatory program ensures fairness: all who benefit from the promotion and research are required to pay the checkoff assessment.

Why are some in the Christmas tree industry exploring a nationwide checkoff for Christmas trees?
The continued decline in the percentage of U.S. homes buying a farm-grown Christmas tree. In 1990, 38% of all homes in the U.S. had a real Christmas tree while 39% of the homes reported having an artificial tree. Last year (2007), only 27% of U.S. homes purchased a farm-grown Christmas tree while 58% of the homes displayed a fake tree. Many feel this loss of market share threatens the long-term existence of a farm-grown Christmas trees. And, they have noted that the fake tree industry is more aggressively promoting their product, often by stating that farm grown trees are a "messy fire hazard that threatens the environment." These leaders feel the industry needs to generate funds to aggressively promote and protect farm-grown trees. The current voluntary program generated about $900,000 in 2004 but slipped to $400,000 in 2007 forcing a reduction in industry promotion and protection programs ... thus opening a window for the fake tree industry to increase its sales. And, the decline in the number of farms making voluntary donations has reinforced the feeling that "why should I pay when my neighbor is not paying."

What are some of the reasons NOT to have a checkoff program for Christmas trees?
Here are some of the comments made about a nationwide checkoff program: "It forces me to pay the checkoff even if I don’t agree with it or its programs." "It gets the federal government involved in our industry." "I can sell everything I grow so why should I pay for nationwide promotion and marketing?" "It creates a bureaucracy to manage the program."

Is the checkoff a ploy to get more money for the National Christmas Tree Association (NCTA)?
A10: No, a marketing order is NOT for NCTA, it is for the Christmas tree growers to promote their product. A "checkoff board" – appointed by the Secretary of Agriculture and completely separate from NCTA – manages the program. This independent board determines what programs are needed to benefit the industry and how to implement those programs and activities. That board may decide to contract with NCTA and/or state associations to implement some of its programs but does not have to.

Can some of the funds be used for state-initiated research and promotion?
Yes if provided for in the marketing order and in compliance with AMS oversight. It is possible for the order to require a specific percent of collections for use in the states or to establish a system for state associations – as potential subcontractors of the "checkoff board" to submit proposals for use of checkoff funds at the state / regional level. No checkoff funds are allowed to be used for lobbying or membership activities and it is unlikely that AMS would approve programs that promote one species against another species.

Who pays the checkoff?
All producers as identified in the federal marketing order pay the assessment. Since 1996, most checkoff programs have exempted "smaller producers" since collection and compliance costs may exceed the amount collected (example: watermelon producers under 10 acres are exempt; blueberries exempts those producing less than 2,000 pounds annually). It is possible to create a dual system whereby "larger" producers pay the mandatory assessment and "smaller" producers pay a voluntary assessment.

Are imported products – such as Canadian Christmas trees – included in the checkoff program.
Yes, if the industry proposes collections on imports, then importers pay the checkoff when the produce enters the U.S. If imports are included in the checkoff collection, importers are eligible to have one or more directors on the "checkoff board" in proportion to their amount of collections.

What is the assessment rate?
The industry would propose an assessment rate. Some establish the rate as a percent of value (examples: pork collects ½% of the selling price; the peanut checkoff is 1% of total value) while others collect on a specific amount (examples: blueberries collects $12 per ton; beef collects $1 per head each time the animal is sold). Some have marketing orders that allow the "checkoff board" to change the assessment rate within minimums and maximums. Others can only change the rate by holding another referendum of eligible producers.

What rules are included to ensure that my personal information remains personal?
The courts have ruled that AMS shall not release personal or company information to any person or agency. This includes ruling that AMS shall NOT release information to the IRS. In addition, members of the "checkoff board" are note allowed to see individual of any individual producer.

How are checkoff funds collected?
First handlers deduct the checkoff for producers included in the checkoff. In the case of Christmas Trees, it is likely that the grower would be considered the first handler and thus responsible for paying the checkoff. Some have suggested that this could be done using the amount of capital gains declared on the IRS Form 4797.

Who enforces the program to be sure everyone pays their checkoff assessment?
The "checkoff board" – under authority of federal law – has initial responsibility to ensure compliance with the assessment. If a producer continues to refuse to pay the assessment, the board can refer the case to AMS which enforces collection and has authority to assess fines and other legal measures to ensure compliance.

How can the funds be used?
The Act authorizes the marketing order to contain authority for the "checkoff board" to use funds collected to "develop and carry out research, promotion and information activities designed to expand, improve or make more efficient the marketing or use of the agricultural commodity." The Act stipulates that checkoff funds shall NOT be used for to influence legislation or governmental action or policy (lobbying) nor for industry membership programs. The Act further stipulates that the promotion, research and information activities authorized cannot be false or misleading or disparaging to another agricultural commodity. Some feel USDA would interpret this to disallow any ads or information negative to artificial Christmas trees.

Who manages checkoff funds & programs?
The marketing order establishes a "checkoff board" that is empowered to manage the checkoff program under the supervision of AMS. The industry – through its proposal to AMS – establishes the desired size of the board and establishes regions, if desired, for directors.

How are directors selected for the "checkoff board?"
The U.S. Secretary of Agriculture appoints members to the "checkoff board" based on nominations from the industry. The industry proposes the size of the board (some have suggested 9 to 15 directors). The Act requires that the industry submit at least two nominees for each board seat. The Act stipulates that the board ensure fair and equitable representation by reflecting the geographical distribution of the production of the commodity involved. If imports are included in the checkoff, importers are entitled to a board seat based on its proportion of checkoff collections. The Act states that the Secretary may also appoint one or more members of the general public to the board. Normally, the board is reapportioned every five years to adjust directorships to reflect production. Most industries limit directors to three three-year terms.

How can the industry keep the checkoff from becoming a large bureaucracy?
The Act stipulates that the "checkoff board" may not spend more than 15% of its annual revenue for administration. Many orders established under the Act include a "cap" administrative expenses at no more than 5%. It is up to the industry to propose a narrower cap that stated in the Act. Some programs "cap" the amount of funds allowed for salaries. Others establish that the board shall use contractors to conduct programs thus eliminating the need for staff that duplicates the experience and expertise of others within the industry.

What would happen to existing agencies promoting farm-grown Christmas trees?
The federally-appointed "checkoff board" starts with a "clean slate." The "checkoff board" will be responsible for determining priorities, programs and agencies. Most likely, the "checkoff board" would issue "requests for proposals" for marketing agencies and other contractors and vendors. While current contractors (such as Smith & Harroff) are eligible to submit proposals, there is no guarantee that they would receive a contract for work on behalf of the "checkoff board."

What issues are being considered by the industry task force?
The Task Force is assessing whether the Christmas tree industry supports developing and submitting to USDA a proposal for nationwide checkoff for Christmas trees (wreaths and greens) and what that checkoff might look. They are addressing questions such as:
1) How could the funds be used? How much money is needed to implement marketing and research programs that can be effective in promoting and protecting farm-grown Christmas trees?
2) What assessment rate is needed to meet the objectives? Should the checkoff be based on the number of trees sold or value of the trees sold? Where is the assessment collected? When is it to be paid?
3) What is the size of the "checkoff board," regions for the board; nomination process; etc.
4) Should brokers and wholesalers pay the assessment too?
5) Should the checkoff assessment include wreaths, garland and other greens?
6) Should the order include a "cap" administrative expenses of the board and should it proscribe how the board can implement its programs?
7) Should state associations receive some checkoff funds for research and promotion and what are the processes and guidelines on how such funds are allocated?
8) If a nationwide checkoff is created, who should serve as the "voice of the industry" (the checkoff board or NCTA)?
Q: How would a nationwide checkoff impact NCTA and its programs?
A: NCTA will create a separate task force to determine how NCTA would change with a specific look at how to fund lobbying and policy advocacy programs that cannot use checkoff funds.

Referendum Procedures
[From AMS Web site]

1. Up-front or Delayed Referendum: The order may provide for a referendum to be held prior to implementation or it may be delayed. If the industry requests a delayed referendum, the referendum must be held within three years after assessment collections begin under the program.
  • If the industry proposes a delayed referendum, producers opposed to the checkoff may request a refund which would be paid after the authorizing referendum is rejected. The Act requires the "checkoff board" to establish an escrow (equal to 10% of collections) to be used to pay any refunds requested. If the order is not approved in the referendum, the board pays those refunds. If the escrow is insufficient to pay the amounts of all refunds, the refunds are to be pro-rated.

2. Who Will Vote: Those who pay assessments would vote in referenda. If imports are assessed, importers must be allowed to vote in referenda.

3. How Referendum will be Conducted: The industry has the options of advance registration and/or voting by mail or in-person.

4. Requirements for Passage: An order may provide for its approval (1) by a majority of those voting; (2) by persons voting who represent a majority of the volume of the commodity voted in the referendum; or (3) both.

5. Periodic Continuance Referenda (optional): The order may provide that USDA conduct a referendum periodically (e.g., every 5 or 6 years) to determine if the industry wants the program to continue.